Judge recommends Ceglia case vs Facebook be dismissed

March 26, 2013|Jonathan Stempel and Nate Raymond | Reuters

(ROBERT GALBRAITH, REUTERS)

(Reuters) - A federal judge on Tuesday recommended the dismissal of a lawsuit against Facebook Inc in which Paul Ceglia, an upstate New York wood pellet salesman, claimed a huge ownership stake in the social media company.

U.S. Magistrate Judge Leslie Foschio said there is "clear and convincing evidence" that an alleged 2003 contract with Mark Zuckerberg, now Facebook's chief executive, that Ceglia claimed entitled him to a one-half interest in the company is a "recently created fabrication."

In October, federal prosecutors in Manhattan announced criminal mail and wire fraud charges against Ceglia, whom U.S. Attorney Preet Bharara accused of seeking "a quick pay day based on a blatant forgery.

Ceglia, who has lived in Wellsville, New York, pleaded not guilty. Each criminal charge carries a maximum sentence of 20 years in prison.

Paul Argentieri, a lawyer for Ceglia, was not immediately available on Tuesday for comment.

In his 2010 civil lawsuit, Ceglia claimed that a 2003 contract he signed with Zuckerberg, then a Harvard University freshman, entitled him to the Facebook stake.

Though Zuckerberg had done programming work for Ceglia's company StreetFax.com, Facebook maintained that a separate agreement involving that entity, which did not entitle Ceglia to a big Facebook stake, was the real contract between the two.

"PLETHORA" OF EVIDENCE

In a 155-page recommendation, Foschio said Ceglia's arguments largely consisted of "self-defeating inconsistencies" that established the "fraudulent nature" of his claims.

"Plaintiff has utterly failed to rebut the plethora of evidence establishing that it is highly probable and reasonable the StreetFax document was the operative contract," the Buffalo, New York-based judge wrote.

Foschio also said it is "highly probable and reasonably certain" that the contract Ceglia said was real was "fabricated for the express purpose of filing the instant action."

The case now goes to U.S. District Judge Richard Arcara, who will decide whether to approve Foschio's recommendation.

Colin Stretch, deputy general counsel of Facebook, said in a statement that Foschio's recommendation "confirms what we have said from day one: this lawsuit is an inexcusable fraud based on forged documents."

Facebook's market value is now about $60 billion.

The accusations against Facebook and Zuckerberg had been an unusual distraction during the Menlo Park, California-based company's march toward its May 2012 initial public offering.

Facebook's origin was also the focus of separate litigation by Zuckerberg's twin Harvard classmates Cameron and Tyler Winklevoss, chronicled in the 2010 movie "The Social Network."

EMAIL TRAIL

Ceglia claimed that Zuckerberg shared his plans for a social networking website while working at StreetFax, and contracted to give him a stake in exchange for a $1,000 investment.

To build his case, Ceglia submitted what he said were emails from Zuckerberg that proved the pair discussed the project that eventually became Facebook.

But Facebook said Zuckerberg did not even conceive of the idea for a social media company until December 2003.

Its lawyers said Ceglia had produced fraudulent documents, citing work by forensic experts who concluded that he had typed text into a Microsoft Word document, and declared it the text of emails with Zuckerberg in 2004.

Ceglia went through a string of lawyers from prominent firms, including DLA Piper and Milberg, who worked with him on various parts of the civil case but later withdrew.

Earlier this month, Ceglia filed a separate civil lawsuit against Bharara and U.S. Attorney General Eric Holder to halt the criminal case.

The civil case is Ceglia v. Zuckerberg et al, U.S. District Court, Western District of New York, No. 10-00569. The lawsuit against Bharara and Holder is Ceglia v. Holder et al in the same court, No. 13-00256. The criminal case is U.S. v. Ceglia, U.S. District Court, Southern District of New York, No 12-cr-00876.

(Reporting by Nate Raymond and Jonathan Stempel in New York; Editing by Leslie Adler and Tim Dobbyn)